MI Life & Health cheat sheet

Insurance in Michigan is regulated by the Department of Insurance and Financial Services (DIFS); the commissioner is appointed by the governor and enforces the Insurance Code.

A producer must hold a Michigan license for each line sold and be appointed by the insurer; commissions may not be shared with an unlicensed person.

Michigan producers renew every 2 years and must complete 24 hours of continuing education, including at least 3 hours of ethics.

Rebating is offering anything of value not specified in the policy to induce a sale; twisting is misrepresenting a policy to induce replacement. Both are prohibited unfair trade practices, as are misrepresentation, coercion, defamation, and boycott.

Premiums collected by a producer are held in a fiduciary capacity; commingling premium funds with personal funds and failing to remit promptly are prohibited.

An insurer must hold a certificate of authority from DIFS to transact business in Michigan; unlicensed insurers may be used only under limited surplus lines rules.

The Michigan Life and Health Insurance Guaranty Association pays covered claims of an insolvent admitted insurer, within statutory limits (for example, $300,000 of death benefit and $100,000 of net cash surrender value).

Individual life insurance and annuity contracts include a free-look period of 10 days, during which the owner may return the policy for a full premium refund.

The commissioner may examine insurers and producers, issue cease-and-desist orders, impose fines, and suspend or revoke licenses for violations.

Insurance transfers pure risk (only loss possible) to a pool of similar exposure units; speculative risk, where gain or loss is possible, is not insurable.

Insurable risks are accidental, measurable, definite as to time, place, cause, and amount, calculable, spread over many similar units, and not catastrophic to the pool.

The law of large numbers holds that as the number of similar exposure units grows, actual losses approach expected losses, making rates predictable.

Adverse selection is the tendency of higher-risk applicants to buy or retain coverage; underwriting, exclusions, and waiting periods control it.

A peril is the cause of loss (fire, death, illness); a hazard is a condition increasing the chance of loss. Moral hazard involves dishonesty; morale hazard involves carelessness or indifference.

Indemnity restores the insured to approximately the pre-loss financial position; life insurance is an exception because a human life has no measurable cash value.

A policy is a contract of adhesion (written by the insurer and interpreted against it), unilateral (only the insurer makes an enforceable promise), conditional, and aleatory.

Utmost good faith requires disclosure of material facts: a representation is believed true, a warranty is guaranteed true, and concealment of a material fact may void coverage.

Waiver is the voluntary surrender of a known right; estoppel prevents a party from asserting a right after conduct on which another party reasonably relied.

Insurable interest must exist at the time of application for life insurance; it is not tested again at the time of death.

The owner controls the policy: naming and changing a revocable beneficiary, borrowing cash value, surrendering, assigning, and choosing settlement options. An irrevocable beneficiary must consent to changes.

Beneficiary order is primary (first to receive proceeds), contingent (receives if no primary survives), and then the insured's estate if no named beneficiary is living.

Coverage amounts are set by the human life value approach (present value of future earnings) or the needs approach (income replacement, debt, education, and final expenses).

A conditional receipt provides coverage only if the applicant proves insurable, and coverage begins on the later of the application date or the date of the medical examination.

Modal premiums cost more than annual premiums: monthly is the most expensive and annual the least, reflecting billing expense and lost interest.

The MIB is a membership database of coded medical information used by underwriters; it is a consumer reporting agency under the FCRA, and the applicant may request its file.

Death proceeds are generally income-tax-free; cash value grows tax-deferred; policy loans are not taxable unless the policy lapses; dividends are not taxable until they exceed total premiums paid.

A policy that fails the 7-pay test is a modified endowment contract (MEC); it loses favorable loan and withdrawal treatment, and gains withdrawn before age 59½ may incur a 10% penalty.

Term insurance covers a stated period, builds no cash value, and pays only if death occurs during the term; forms include level, decreasing, increasing, and annually renewable term.

Renewable term guarantees the right to continue coverage without new evidence of insurability, at a premium that increases with attained age.

Conversion lets term coverage become permanent without evidence of insurability; attained-age conversion uses the current age, while original-age conversion requires paying the premium difference.

Whole life provides level premiums for life or a limited period, a guaranteed death benefit, and guaranteed cash value; participating policies pay dividends that are treated as a return of premium for tax purposes.

Limited-pay whole life (20-pay, paid-up at 65, single premium) compresses premium payments into a shorter period while coverage remains in force for life.

Universal life offers flexible premiums and an adjustable death benefit with cash value credited current interest subject to a guaranteed minimum; Option A is a level death benefit, Option B an increasing one.

Variable life and variable universal life place cash value in a separate account; they require a securities (FINRA) license and delivery of a prospectus, and values are not guaranteed.

Indexed universal life credits interest tied to an external index, subject to a floor that protects against loss and a cap or participation rate that limits gains.

Survivorship (second-to-die) insurance pays at the second death and is used for estate planning; group life issues one master policy with certificates to participants, requiring 100% participation when noncontributory and 75% when contributory.

The entire contract provision states that the policy plus the attached application is the whole agreement, and nothing else is incorporated by reference.

The grace period, commonly 31 days, allows a late premium payment without lapse; coverage continues, and any unpaid premium is deducted from the proceeds.

The incontestability clause bars the insurer from contesting the policy after it has been in force two years for material misrepresentation in the application.

The suicide clause limits the insurer to two years after issue; during that period the death benefit is limited to a refund of premiums paid.

Reinstatement is available within 3 years of lapse with evidence of insurability and payment of overdue premiums plus interest; the contestable and suicide periods may restart.

Misstatement of age or sex adjusts the death benefit to the amount the premium paid would have purchased at the correct age or sex.

Nonforfeiture options on lapse or surrender: cash surrender value, reduced paid-up insurance, and extended term insurance.

Dividend options: cash, reduction of premium, accumulation at interest, paid-up additions, and one-year term (the fifth dividend option).

Settlement options: lump sum, interest only, fixed period, fixed amount, and life income (straight life, period certain, refund, joint and survivor). Common riders include waiver of premium, disability income, accidental death, guaranteed insurability, child term, term, accelerated death benefit, and long-term care.

An annuity liquidates a sum of money over time and protects against the risk of outliving income (longevity); it is the opposite of life insurance, which creates an estate.

Deferred annuities accumulate value before payout; immediate annuities begin income within one payment period after a single premium.

Fixed annuities guarantee a minimum interest rate and payment; variable annuities invest in a separate account and require a prospectus and FINRA license; indexed annuities credit interest by an index formula with a floor and cap.

During accumulation, variable annuity values are measured in accumulation units; at annuitization those units convert into a fixed number of annuity units that set the payment amount.

Payout options include life only (largest payment, ends at death), life with period certain, installment refund, cash refund, and joint and survivor.

The exclusion ratio equals investment in the contract divided by expected return; that portion of each payment is a tax-free return of basis and the balance is taxable income.

Nonqualified annuity withdrawals are taxed LIFO (gains first), and a 10% penalty applies to taxable gains withdrawn before age 59½, with exceptions such as death or disability.

Surrender charges may apply to withdrawals during the surrender period, and most contracts permit a free withdrawal of a stated percentage each year.

A 1035 exchange moves an annuity or life policy into a like contract tax-free; replacement rules require disclosure and a suitability review.

Health insurance pays benefits for sickness or accidental injury; the insuring clause states the insurer's promise and the consideration clause identifies the premium and the application as the exchange.

A deductible is what the insured pays before benefits begin; coinsurance is the insured's percentage share after the deductible; the out-of-pocket maximum (stop-loss) caps the insured's coinsurance exposure.

A copayment is a fixed dollar amount per service, while coinsurance is a percentage of the covered charge.

Individual health policies are medically underwritten; group policies are underwritten on the group as a whole and generally do not require individual evidence of insurability.

Managed care models: HMO (primary care gatekeeper, capitation, in-network only), PPO (network discounts with out-of-network benefits, no referrals), POS (gatekeeper plus some out-of-network coverage), EPO (network only, no referrals).

A high-deductible health plan may be paired with a health savings account; HSA contributions are tax-deductible, grow tax-deferred, roll over, and are portable.

Basic medical expense covers hospital, surgical, and medical costs in specified amounts, while major medical adds broad benefits, a large maximum, a deductible, and coinsurance.

The Affordable Care Act requires guaranteed issue and renewability, essential health benefits, no annual or lifetime dollar limits, dependent coverage to age 26, and modified community rating.

Medicare has Part A (hospital), Part B (medical), Part C (Medicare Advantage), and Part D (prescription drugs); eligibility generally begins at 65, after 24 months of disability benefits, or with ESRD.

Uniform required provisions include the entire contract, grace period, reinstatement, notice of claim (20 days), claim forms (15 days), proof of loss (90 days), time of payment of claims (45 days), and legal actions.

The grace period for health premiums is 7 days for weekly mode, 10 days for monthly mode, and 31 days for other modes, and coverage stays in force during that time.

The incontestability provision prevents the insurer from contesting the policy after two years in force for misstatements in the application, except for fraud or nonpayment of premium.

The legal actions provision bars suit until 60 days after proof of loss is filed and after 3 years from the date proof of loss is required.

Renewability types: cancellable, optionally renewable, conditionally renewable, guaranteed renewable (the insurer may raise rates by class but cannot cancel), and noncancellable (no cancellation and no rate increase).

A pre-existing condition is one diagnosed or treated within the policy's look-back period; group plans may apply a limited exclusion period that is offset by prior creditable coverage.

The change of occupation provision reduces benefits if the insured moves to a more hazardous occupation; misstatement of age adjusts benefits to what the premium paid would have bought.

Coordination of benefits sets the primary and secondary payer when a person has two group plans; for dependent children, the birthday rule usually makes the plan of the parent whose birthday falls earlier in the year primary.

COBRA continuation runs 18 months for termination or reduced hours, 29 months when a qualified beneficiary is disabled, and 36 months for divorce, death, or a child aging out of eligibility.

Disability income replaces part of earned income during disability, typically 60–70% of gross income; it does not pay medical expenses.

Total disability may be defined as own occupation (unable to perform the duties of the pre-disability job, usually for a limited period) or any occupation (unable to perform any job for which the insured is reasonably suited).

The elimination period is the waiting time after disability begins before benefits are payable; a longer elimination period lowers the premium.

The benefit period is how long benefits continue; short-term plans pay up to 6 months to 2 years, while long-term plans pay to age 65 or for a stated number of years.

Partial disability pays a reduced benefit when the insured can perform some but not all duties; residual disability pays in proportion to the income actually lost.

Business disability coverages include business overhead expense (pays operating costs), disability buy-sell (funds purchase of a partner's interest), and key person disability.

Benefits may be integrated or offset with Social Security and other income; benefits from an individually purchased policy are generally tax-free, while employer-paid group benefits are taxable.

Accidental death and dismemberment pays the principal sum for accidental death and a capital sum (a stated percentage of the principal sum) for loss of limbs, sight, or other specified injuries.

Long-term care insurance pays for skilled, intermediate, and custodial care when the insured cannot perform a stated number of activities of daily living (bathing, dressing, eating, toileting, transferring, continence) or has cognitive impairment.

Group health is issued as a single master policy to the employer or association; each participant receives a certificate of coverage rather than the master policy.

Noncontributory plans, where the employer pays all, require 100% participation; contributory plans require 75% participation, which limits adverse selection.

Group underwriting examines the group's size, industry, prior claims, and demographics rather than individual health, though late enrollees may need individual evidence.

HMOs pay providers by capitation and use a primary care gatekeeper; PPOs negotiate discounted fees with network providers and allow out-of-network care at higher cost.

Medicare Part A covers inpatient hospital, skilled nursing, hospice, and some home health; Part B covers physician and outpatient services and requires a monthly premium; Part D covers prescriptions.

Medicare Supplement (Medigap) policies fill Medicare gaps; Plans C and F may not be sold to people newly eligible for Medicare on or after January 1, 2020, and open enrollment lasts six months from Part B enrollment.

Medicaid is a joint federal–state program for low-income people, including long-term care; Michigan covers eligible adults through the Healthy Michigan Plan.

Flexible spending accounts let employees set aside pre-tax money for medical expenses but generally must be used within the plan year, while HSAs require an HDHP and roll over unused funds.

Coordination of benefits: an employee's own plan pays before a spouse's plan, and dependent children are covered first by the plan of the parent whose birthday comes first in the year (birthday rule).